Why the Internet Doesn’t Change Everything

Think the Web changes everything? HBS professor Debora L. Spar isn't convinced. And she has the research on hundreds of years of technological upheaval to back her up.

by Debora L. Spar

Editor's Note— As the technology wave breaks over us, some think the Internet looks to many about to wash out the established order of everything from vacation booking to the nation-state itself. But hold on a minute, Debora Spar cautions. We've seen technological revolution—and the resulting chaos—like this before. And anarchy has always yielded back to law and order.

In this excerpt from her new book, Ruling the Waves: Cycles of Discovery, Chaos, and Wealth from the Compass to the Internet, Spar looks to history to put the Internet "revolution" into perspective.

Partenia is a lonely place. Strewn across the sands of the Sahara, it is formally located in Tunisia, or Algeria, or Libya, depending on to whom you talk or which way the winds are blowing. It is an ancient place, Partenia, a remnant of a world that hardly anyone can even remember. Yet in a very strange way Partenia is coming back.

In 1995, the Vatican dismissed an outspoken French bishop named Jacques Gaillot. Arguing that Gaillot had been far too liberal for the Church's doctrine, Vatican officials removed him from his diocese outside Paris and sent him to Partenia. Clearly it was a symbolic move, for the Church never expected Gaillot to preach to the empty drifts of the Sahara. They simply wanted to defrock him gently, pushing the unruly bishop to one of the several jurisdictions reserved for retired, aging, or unwanted priests. Gaillot, however, wasn't prepared to go quietly, or to renounce the liberal views that had angered his superiors in Rome. So he went to Partenia—virtually.

One year after his dismissal, Gaillot launched the world's first "virtual diocese." Named Partenia, it is a site for liberal Catholics, a "place of freedom," according to Gaillot, where Catholics can discuss the issues that Gaillot had come to stand for: the problem of homelessness, the spread of AIDS, the evils of nuclear testing, and the wisdom of married priests. In the first six weeks of 1996, Partenia registered 250,000 hits. The Vatican, presumably, was not impressed with Gaillot's move and spent a good deal of time trying to concoct a strategy for dealing with this unsettling cyber-priest. But there really wasn't much that they could do, so they left Gaillot and his liberal site alone. Partenia had won.

In cyberspace, Partenia is everywhere. Dotted along the Internet's web are millions of places where rebels like Bishop Gaillot reside. There are pornography sites accessible to straitlaced Singaporeans, Liberian gambling dens, and secluded banking services run from the tiny island of Anguilla. There are networks of Burmese dissidents, collecting information on the dictatorial regime in Rangoon and e-mailing it to thousands of supporters around the world. There are bootleg copies of academic papers and Snoop Doggy Dogg's latest hits. In cyberspace, even solemn corporations indulge their rebel side, slipping around the real-world laws that govern things such as export controls and truth in advertising.

If we look at cyberspace from the viewpoint of Partenia, then, it looks very much like a frontier town—like California of the 1890s, or the Indies to which Europe scrambled in the seventeenth century. There are the usual hordes of rebels and rogues, plus scores of pioneers and golddiggers, each scrambling to carve out new territories and stake their claims in them. There are people like Marc Andreessen and Jerry Yang (the respective founders of Netscape and Yahoo!), who ventured west to test their mettle and made incredible fortunes virtually overnight. There are prophets who scream of a brave new world and traveling salesmen hawking IPOs instead of snake oil. (The connection, of course, may not be that distant.) As on any good frontier, there are not a lot of rules or marshals in town, so justice is rough and the winners grab whatever they can. There are, to be sure, some remote authorities (the U.S. Federal Communications Commission, the European Commission's DG IV) who claim to be patrolling the area, but everyone knows that their guns are not loaded. For cyberspace, it seems, is a lawless realm, a place where unruly bishops can confound the Pope and Jerry Yang can start a multi-billion dollar industry before turning thirty.

While cyberspace is new and sparkling with opportunity, it is not that new and that much sparklier than other technologies were on the eve of their creation. —Debora L. Spar

This sense of anarchy permeates the farthest reaches of the Net. In Silicon Valley, along Route 128, and in the samizdat cafes of Beijing and Rangoon, there is a palpable sense of excitement, a prevailing belief that authority is dead and that digital technologies have killed it. And to some extent this is true. Digital technologies have created a revolution of sorts. They have allowed entrepreneurs to build empires out of fiber and thin air and to establish these empires in a realm without rules. They have challenged governments and their traditional authority—not by design or intent, but purely as a result of technological accident. Because digital technologies allow information to flow seamlessly and invisibly across national borders, they make it very difficult for governments to do many of the things to which they have grown accustomed. Governments can't patrol their physical territories in cyberspace; they can't easily enforce property rights over ephemeral ideas and rapidly moving bits; they can't control information flows; they even may not be able to collect taxes. Such is the nature of politics along the technological frontier.

Yet even in the midst of all this tumult, it is useful to maintain a sense of perspective, and of history. Cyberspace is indeed a brave new world, but it's not the only new world. There have been other moments in time that undoubtedly felt very much like the present era, other moments when technology raced faster than governments and called forth whole new markets and social structures. Other entrepreneurs sensed that they, too, were standing on the edge of history, bending authority to their will and reaping fabulous profits along the way. Some of them succeeded beyond their wildest dreams. Pioneers such as Thomas Edison and Guglielmo Marconi, for example, saw the fantastic opportunity of technology and ran nimbly along its curve. They built empires where none existed and wrote rules to serve their own advantage. Other pioneers, however, were far less successful. Even if they had path-breaking technology, and even if they flourished for some time in a period of blissful chaos, many entrepreneurs eventually found themselves caught by a system that bit back—by markets that reasserted their old ways or governments that outraced the technological frontier and claimed it for themselves. The new world in these cases fell back into the old, leaving the pioneers stranded on what once seemed to be the future.

Technology challenged the Church, forcing it to change in some ways, but it certainly did not kill it. —Debora L. Spar

This is a book that tries to yank the Internet out of the spotlight of the twenty-first century and back to its older and dimmer roots. It argues that while cyberspace is new and sparkling with opportunity, it is not that new and that much sparklier than other technologies were on the eve of their creation. We are undeniably living in a revolutionary period. We see this revolution every day and feel it crack the structures of our lives. We see it in the rush toward Silicon Valley; in the euphoria that drove Internet stocks to unbelievable heights; in the intrusion of e-mail and surfing and "dot.com" everything. At a more profound level, it is also clear that this revolution will seriously affect both business and politics. It will open vast new vistas for commerce and, in the process, will challenge relations between private firms and the governments that seek to regulate them. The information revolution is alive and well. It will change the way we work, they way we play, and the way in which we order our societies. It will change in particular how we think about governments, because cyberspace is a realm that seems inherently to ignore traditional authorities. Cyberspace, in fact, is a truly global phenomenon, something that spans borders irrepressibly and imperceptibly. Purely by accident, the Net shatters our notions of what a "state" does or what a "national economy" is. For cyberspace is bigger than any state and well beyond traditional powers of enforcement. What can the Pope do if Bishop Gaillot uses his site to condemn celibacy in the priesthood and encourage the use of condoms? Not much. How can Singapore stop its citizens from peeking at Hustler on their laptops? Or the U.S. government prevent American firms from using high-powered security software in their overseas affiliates? Again, they essentially can't. Silently, cyberspace challenges the power of government by going where it, by definition, cannot: across national borders.

Theoretically, this shift in geography should be a tremendous boon to firms, just as it is a rather terrifying prospect for states. Freed from governmental control, firms in cyberspace should be able to operate freely and without rules. They should be able to write their own terms and strike their own deals without having to pay any heed to bureaucratic whim or regulation. This, after all, is the political thrill of the Net. Yet this is also where history suggests a certain amount of prudence. Other technologies have challenged government's authority; other pioneers have gleefully declared the death of the state. What their stories show us, though, is that while technology can gravely wound governments, it rarely kills them. Instead, governments survive because, ironically, both society and entrepreneurs want them. Governments provide the property rights that entrepreneurs eventually want, the legal stability that commerce craves, and the stability that society demands. For in the end, even pirates and pioneers want order. Once they have staked their claim or claimed their loot, they want someone else to protect it. And that someone else is usually the state.

Five Questions for Debora L. Spar

HBS Working Knowledge editor Sean Silverthorne conducted an email interview with Debora L. Spar about her new book, Ruling the Waves: Cycles of Invention, Chaos and Wealth.

Silverthorne: In Next: The Future Just Happened, Michael Lewis argues that the Internet enables individuals—a teen manipulating the stock market—to overthrow established players. The old rules no longer apply. You argue that during these periods of change the old rules may not apply for a period of time, but in the end the system bites back. Even the innovators demand the return of rules and law. Is Lewis being premature in his "Internet changes everything" scenario?

Spar: I think he is. Lewis is right, I believe, in arguing that the Internet is a radical technology and that it has showered both wealth and power on a range of non-obvious people: young people, inexperienced people, people outside the so-called Establishment. But I don't think that the Internet changes everything; and I certainly don't think that it changes our basic, underlying demand for the rule of law. In the book, for example, I describe how both self-professed radicals and staid high-technology companies pushed the U.S. government in the late 1990s into relaxing its rules on encryption exports—a great case of how the Internet would seem to take power away from the state and put it, as Lewis might predict, back into the hands of individuals. Yet just look at what the fall-out from the World Trade Center attack is likely to be. People, I suspect, will demand that governments step back into the game—that they regulate, or at least track, encryption exports, and that they find the means to eavesdrop again on potential terrorists. People will demand that the government protect their privacy online, and their property as well. So even though the technology may change, it doesn't necessarily bring everything in society along with it.

Q: Is there anything about the Internet that is different from past innovations such as the printing press or radio? Could the Internet be the technology that breaks with history?

A: There are many ways in which the Internet differs from past innovations. The Net is much more international, for one thing, and it crosses borders even more easily than did the telegraph or the radio. It is a relatively inexpensive technology (once people have access to the basic communications infrastructure) and it allows for a whole range of media to be combined in exciting and innovative ways. But I still don't think that gives it any particular edge on history. Society has not been fundamentally altered by this new means of transmitting information, nor have the underlying conditions for either governments or markets. The one thing that I think will be most dramatic, though, is the ability of the Internet to sneak information around the governments who would be most likely to try to stop its flow. In this regard, I think that over the long run, the Net will prove to be most influential not in the Western industrialized world, but in places like Burma, or China, or Saudi Arabia.

Q: What are the public policy implications in your description of this reoccurring give-and-take between innovators and regulators?

A: The most important implication is that both business and government need to realize that, at some stage, they will be working together. Smart businesses will realize that a completely apolitical strategy—a strategy that assumes governments will simply go away or get out of the market—simply will not work. And smart policymakers will realize that, despite an initial hands-off approach, they will eventually have to think about what kinds of policies make sense for a new technology. As the book describes, regulators can either intervene at the start of a new market (which has essentially been the European model) or once the market has is already underway (the typical American response). In either case, though, policies are demanded and policymakers need to think about how best to balance the demands of society and commerce.

Q: In today's headlines, what story or stories do you see that affirm your view of how cycles of innovation work?

A: There are many. Recent decisions against Napster and other file-sharing firms, for example, confirm that property means are by no means dead online. On the contrary, both citizens and firms want to preserve property rights in cyberspace, and they want government to take an active role in that enforcement. We see a similar demand with regard to the Russian programmer who was just arrested in the United States for distributing a technology that allowed readers to break through the software protecting e-books. I also think that the whole case against Microsoft shows that antitrust law is alive and well in cyberspace and that governments are fully prepared to enforce it. And finally, although we haven't seen these stories yet, I imagine that there will soon be a lot more interest in preventing possible terrorists from using encryption codes that governments can't crack.

Q: Any surprises as you did your research for the book?

A: The biggest one was how large a role private firms played in dragging the government back towards regulation. In most of the cases I studied, it was firms, rather than states, that voiced the initial demand for rules. It was U.S. firms, for example, that begged the U.S. government to regulate the radio market in the late 1920s, and firms that pushed the British state to finally put an end to piracy. In retrospect, of course, it all makes sense: for once entrepreneurs have carved out a lucrative piece of a new market, they want someone to protect their position and governments are well poised to do so. But I was surprised to see how strong this dynamic was, and how common.

Excerpted with permission from Ruling the Waves: Cycles of Discovery, Chaos, and Wealth from the Compass to the Internet,Harcourt, 2001.